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The Trans-Pacific Partnership Agreement: a new era for trade in the Asia-Pacific region

On 4 October 2015, 12 countries across the Asia-Pacific region, including the United States, Australia, Canada and Singapore, concluded the Transpacific Partnership Agreement (the TPP) after five years of negotiation. The original motivation for the TPP was to streamline the numerous free trade agreements currently in force across the region. However, as additional parties joined the negotiations, it became clear that the agreement would also open opportunities between countries which had not previously entered into bilateral trade agreements and promote global supply chains.

The finalisation of the TPP is being heralded as a 21st-century agreement and a significant step towards realising a free trade area for the Asia-Pacific region.

The full text of the TPP is yet to be released but a number of parties have issued summary documents setting out the scope of the agreement, key outcomes and the anticipated benefits for business and consumers.

Negotiators are now preparing a complete text of the TPP for public release. Each country will then have to implement the agreement through their respective domestic treaty-ratification processes. The TPP will enter into force once at least six original signatories have ratified the agreement.

The parties

The TPP is between parties which together represent around 40% of the global economy and a quarter of world trade: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

The TPP builds on the Trans-Pacific Strategic Economic Partnership Agreement (P4) between Brunei, Chile, New Zealand and Singapore which came into force in 2006.

Key outcomes

Goods

The TPP will significantly reduce (and in many cases eliminate) tariff and non-tariff barriers for trade for industrial and agricultural goods across the Asia-Pacific region. Although the TPP is a plurilateral agreement, the market access provisions have been negotiated on a bilateral basis which means different tariff reductions will apply to different exports depending on the country exporting the product.

A major feature of the TPP is the focus on “accumulation” whereby value can be added to goods in various TPP countries and the finished product can be exported to another TPP country at a preferential rate.

This will encourage the development of cross-border supply chains across the Asia-Pacific region.

Services

The TPP will remove a number of barriers to services exports across the Asia-Pacific region. The commitments have been made on a “negative list basis” which means that the parties start from a position where their markets are fully open to services suppliers from other TPP countries and define any non-conforming measures.

Standalone chapters have been negotiated in respect of financial services and telecommunications.

Investment

The TPP parties have also adopted a “negative list” regime for investments, meaning that each parties’ markets are fully open to foreign investors subject to specified exceptions.

Investment regimes in key sectors such as mining and resources, telecommunications and financial services will be liberalised and TPP parties will be afforded preferential screening thresholds. Separately, Japan, Vietnam and Brunei will only impose conditions on foreign investment on the initial sale of interests or assets owned by the government.

Foreign investments in TPP countries are to be afforded the usual investment treaty protections, such as:

national treatment;

most-favoured-nation treatment;

minimum standard of treatment” for investments in accordance with customary international law principles;

prohibition of expropriation that is not for public purpose, without due process, or without compensation;

prohibition on “performance requirements” such as local content or technology localisation requirements; and

free transfer of funds related to an investment.

The TPP provides for investor-state dispute settlement (ISDS), subject to certain exceptions and with additional safeguards to prevent misuse of this mechanism.

Features of the ISDS process will include:

compulsory consultation and the encouragement of alternative dispute resolution methods;

submissions and any final report prepared by an arbitral tribunal will be publicly available;

hearings will be public unless otherwise agreed;

tribunal members will be subject to a code of conduct;

amicus curiae submissions;

binding joint interpretations by the TPP parties; and

a review procedure for interim awards.

The Dispute Settlement chapter will also allow for the use of trade retaliation if a State fails to comply with its TPP obligations. Before use of trade retaliation, a State found in violation can negotiate or arbitrate a reasonable period of time in which to remedy the breach.

Reducing trade barriers and the costs of doing business

The TPP will implement a number of measures aimed at promoting trade between State parties by reducing trade barriers and the costs of doing business, including:

preferential trading arrangements for products created with inputs procured via an international supply chain (and therefore subject to taxes at each border);

more transparent and efficient customs procedures;

the introduction of a single set of procedures for products traded under the TPP accompanied by regional rules of origin;

mechanisms to address non-tariff barriers; and

duty-free temporary admission of pallets and containers.

Other Issues

The TPP also includes commitments in a range of other areas including e-commerce (focussed on flow of information and data), intellectual property, environment, labour rights, government procurement and competition. The TPP will also include provisions which require parties to adopt or maintain laws criminalising bribery of foreign public officials and other acts of corruption in international trade and effectively enforce such laws and regulations.

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